S.F. agency wants out of ad marriage

Major ad agencies are optimistically heading west in search of creative talent and dot-com riches. But their grand plans keep running smack into the stubborn independence of San Francisco shops.

In the latest east-west culture clash, San Francisco's Winkler Advertising is in talks to buy back the significant equity stake it sold to a unit of Grey Advertising nearly three years ago.

That comes on the heels of the recent collapse of two other, similar deals. Late last year, Euro RSCG Worldwide's agreement to buy a majority stake in the city's largest independent agency, Citron Haligman Bedecarre, unraveled. And earlier this month, Pittsburgh-based Marc USA and San Francisco's Zuckerman Fernandes & Partners called off their planned nuptials.

INDEPENDENT SPIRIT

Observers say that in their rush to cut deals, eastern agencies have underestimated their West Coast counterparts' independent spirit and the Internet speed at which the agencies doing business in the nation's high-tech corridor are shifting direction.

In the case of Winkler, Grey Ventures bought a "significant equity position" in a shop that handled Sony Corp. of America, Hewlett-Packard Co. and Autodesk. Those clients have since left the agency, which currently claims $75 million in billings. Winkler recently has acquired a bevy of dot-coms, including Mr. Stock and Iprint.com.

It wasn't immediately clear why Winkler decided to buy back its independence. CEO Agnieszka Winkler wasn't available at press time and Grey declined comment.

In addition to the general agency, Winkler also owns an independent company it developed, Team Toolz, which markets a Web-based product that allows marketers to manage multiple agency relationships, share work in progress and conduct online meetings.

The tech revolution is driving business on the West Coast. It's "fluid and moving quickly," according to one executive involved in the dealmaking. He compared the situation with agreeing to sell a house, then discovering there's an oil well in the backyard.

"People think they are just buying a house. They don't understand they're buying a revenue stream," he said.

ALLURE OF GOING PUBLIC

Another factor conspiring against the eastern dealmakers: Their West Coast counterparts realize the local shops have a greater shot at making a killing if their agencies go public as independents, particularly if they specialize in Internet marketing. Citron Haligman, for example, has repositioned itself to tap the dot-com flood; it has nine Net clients on its roster, including Women.com and GoodHome.com.

Zuckerman Fernandes also found itself wrestling with eastern agencies' inability to fully appreciate the local business dynamic.

"There was a lack of understanding of the price of doing business in San Francisco," said Jim McGill, exec VP-general manager at Zuckerman Fernandes. He said the Marc deal dissolved over issues relating to compensation for the local agency's partners.

The agencies also are said to have had trouble meshing financial systems, leading to problems such as deciding how to credit the San Francisco shop for assisting other Marc agencies with pitches or creative work. Conflicts also reared their heads as Marc shops swept up clients that presented conflicts with accounts handled by the San Francisco agency.

`FINANCIAL ISSUES'

Marc Chairman-CEO Tony Bucci, however, said, "the only reason" the two parted was "financial issues we couldn't come to an agreement on."

The ardor of out-of-towners for owning a piece of the Golden West however hasn't cooled; Marc and Wolf Group and MDC, both Toronto, still are scouring the coast for shops to buy.

"We'll be there, big and strong," Mr. Bucci said.

"San Francisco, Los Angeles and even Seattle are very hot markets," said Abe Jones, managing director of AdMedia Partners, New York. "There would be more activity if there were more agencies to buy."

Mr. Jones said a yet-to-be-released survey his company has conducted shows it's still a seller's market, with general-market agencies going for six to seven times operating profits. That's up from about five times operating profit five years ago.

For interactive agencies, the multiple applies instead to revenues. There, price tags range from three times to five times revenue, he said.